Solution to CHE 431 Assignment 1 (2016/2017 Session)

QUESTION 1.
A manufacturer provides a warranty against failure of a carbon steel product within the first 30 days after
sale. 10 out of 1000 sold were found to have failed by corrosion during the warranty period. Total cost of
replacement for each failed product is approximately N1,200,000, including the cost of environmental
clean-up, loss of product, downtime, repair, and replacement.
a.) Calculate the risk of failure by corrosion, in Naira.
b.) If a corrosion-resistant alloy would prevent failure by corrosion, is an incremental cost of N1200
to manfacture the product using such an alloy justified? What would be the maximum
incremental cost that would be justified in using an alloy that would prevent failures by corrosion?
SOLUTION.
(a)
=
R= Risk
P= Probability of failure
C= Consequence of failure

Since 10 out of 1000 carbon-steel products fail, the probability of having a failed product is given by:
=

10
= 0.01
1000

The consequence of failure by corrosion, given in monetary terms (as the cost of replacement) is
= 1,200,000
Therefore the risk of failure of a product is calculated as,
= 0.01 1,200,000 = 12,000

(b)

There is justification for spending an additional cost of N1200 to avert a corrosion failure whose
consequence in monetary terms is N12000.

Ajibola Ogunbiyi

The maximum incremental cost that will be justified in using an alloy that would prevent failures
is N12000, i.e. the value of the consequence of failure. There is no financial sense in spending an
amount of money that is more than the consquence of failure of a product in order to prevent the
failure; the product should rather fail.

Note that the assumption here is that the consequence of failure can be given wholly in monetary
terms. When the consequence of failure involves human lives, for example, the sanctity of human
lives would be given preference compared to cost safety first.

QUESTION 2
Linings of tanks can fail because of salt contamination of the surface that remains after the surface is
prepared for the application of the lining. Between 15% and 80% of coating failures have been attributed
to residual salt contamination. The cost of reworking a failed lining of a specific tank has been estimated
at N9,000,000. [Reference: H.Peters, Monetizing the risk of coating Failure, Materials Performance 45 (5)
30 (2006)].
a.) Calculate the risk due to this type of failure assuming that 20% of failures are caused by residual salt
contamination.
b.) If the cost of testing and removal of contaminating salts is N450,000, is this additional cost justified
based on the risk calculation in (a).
c.) Calculate the minimum percentage of failures caused by residual salt contamination at which the
additional cost of N450,000 for testing and removal is justified.

SOLUTION
(a)
As before
=
20% failure means that 1 out of 5 will fail, i.e
=

20
= 0.2
100

The consequence of failure here is the cost of reworking a failed lining

= 9,000,000
Therefore risk is,
Ajibola Ogunbiyi

 = 0.2 9,000,000 = 1,800,000

(b) Incurring a cost of N450,000 to avert a corrosion failure of the lining is economically justified since it
is less than the risk of having it fail (which is N1800000).
(c) The contest here is between the additional cost to prevent a corrosion failure and the cost of failure
to the company (i.e the risk, R).
The minimum risk that is justifiable at an additional cost of testing and removing contaminating salt
causing failure is N450000. We know that spending this additional cost of N450000 will not be justified if
the risk is less than this amount.
The simple task is then to find the percentage of failure (probability) corresponding to this minimum
risk, where the consequence of failure, C still remains N9000000.
Hence, at R = N450000 and C = N9000000, we want to find P.
Substituting in the formula:
=
450000 = 9000000
=

450000
9000000

= 0.05, i.e 5%

At any percentage of failure less than 5%, the risk of failure becomes less than N450000 which does not
make spending the said N450000 as a cost of preventing corrosion failure justifiable. At a percentage of
failure of 4%, for example, you will have a risk value of N360000 which is less than N450000 and hence
not justifiable. Hence, the minimum is 5%.

Ajibola Ogunbiyi